An insurance company suffers from adverse selection if: safe customers are less
ID: 1194184 • Letter: A
Question
An insurance company suffers from adverse selection if:
safe customers are less likely to insure than risky customers.
customers know their willingness to pay for insurance but the company does not.
a customer takes on much greater risk because he is insured.
its customers are risk averse.
Which of the following is not an example of moral hazard?
People are more likely to lock their own car than a rental
Skateboarders attempt more difficult maeuvers when wearing a helmet.
Bad salespeople are less drawn to commission based jobs.
People with fire insurance are less likely to install smoke alarms.
Adverse selection is:
when people act differently because they are insured
when more risk averse people want to be insured more
when people at greater risk want to be insured more
when your guess at a test question is wrong
The "lemons" problem is that:
cars of verifiable high quality are withheld from the used car market
cars of verifiable low quality are withheld from the used car market
cars of unverifiable high quality are withheld from the used car market
cars of unverifiable low quality are withheld from the used car market
Signaling is:
actions by the informed party to reveal her true risks
actions by the informed party to conceal her true risks
actions by the uninformed party to uncover the true risks
actions by the uninformed party to conceal the true risks
An example of moral hazard is moral hazard has to do with unobservable characteristics of individuals:
workers shirking when the boss is not looking
Insured workers diet and exercise
drivers of safer cars turning their phones off before driving
borrowers investing their loan proceeds exactly as the bank requires
safe customers are less likely to insure than risky customers.
customers know their willingness to pay for insurance but the company does not.
a customer takes on much greater risk because he is insured.
its customers are risk averse.
Which of the following is not an example of moral hazard?
People are more likely to lock their own car than a rental
Skateboarders attempt more difficult maeuvers when wearing a helmet.
Bad salespeople are less drawn to commission based jobs.
People with fire insurance are less likely to install smoke alarms.
Adverse selection is:
when people act differently because they are insured
when more risk averse people want to be insured more
when people at greater risk want to be insured more
when your guess at a test question is wrong
The "lemons" problem is that:
cars of verifiable high quality are withheld from the used car market
cars of verifiable low quality are withheld from the used car market
cars of unverifiable high quality are withheld from the used car market
cars of unverifiable low quality are withheld from the used car market
Signaling is:
actions by the informed party to reveal her true risks
actions by the informed party to conceal her true risks
actions by the uninformed party to uncover the true risks
actions by the uninformed party to conceal the true risks
An example of moral hazard is moral hazard has to do with unobservable characteristics of individuals:
workers shirking when the boss is not looking
Insured workers diet and exercise
drivers of safer cars turning their phones off before driving
borrowers investing their loan proceeds exactly as the bank requires
Explanation / Answer
An insurance company suffers from adverse selection if customers know their willingness to pay for insurance but the company does not. Due to this the consumers would not reveal sensitive information to the company and may be paying lesser premium to the insurance companies.
2. Which of the following is not an example of moral hazard?
People with fire insurance are less likely to install smoke alarms is an example of moral hazard. This is because the people with fire insurance will always take greater risks than the one with no fire insurance. The case will also be like more people who know that their premises are fire prone.
3. Adverse selection is when people act differently because they are insured when people at greater risk want to be insured more.
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